Question

When earning compound interest on money you invest, which statement is true?

A.
As time goes on and your bank account grows, you earn more interest.
B.
As time goes on and your bank account grows, you earn less interest.
C.
As time goes on and your bank account grows, you earn the same amount of interest.
D.
As time goes on and your bank account grows, you stop earning interest.

Answer 1

Explanation:

Effective annual interest rate is an investment’s annual rate

of interest when compounding occurs more than a year.

The effective interest rate is calculated as if compounded

annually. The effective rate is calculated in following way…..

r = effective annual rate

i = nominal rate

n = number of periods

= (1+i/n)^n -1

For example, a nominal interest rate 6% compounded

monthly is equivalent to an effective interest rate of 6.17%

So, option A is the correct answer.